G.R. No.
135706             October 1, 2004 …defendant bank was placed under receivership
SPS. CESAR A. LARROBIS, JR. and VIRGINIA S.
LARROBIS, petitioners,
vs.
PHILIPPINE VETERANS BANK, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review of the decision of the
Regional Trial Court (RTC), Cebu City, Branch 24, dated
April 17, 1998,1 and the order denying petitioner’s
motion for reconsideration dated August 25, 1998,
raising pure questions of law.2
The following facts are uncontroverted:
On March 3, 1980, petitioner spouses contracted
a monetary loan with respondent Philippine
Veterans Bank in the amount of ₱135,000.00,
evidenced by a promissory note, due and
demandable on February 27, 1981, and secured
by a Real Estate Mortgage executed on their lot
together with the improvements thereon.
On March 23, 1985, the respondent bank went
bankrupt and was placed under
receivership/liquidation by the Central Bank from
April 25, 1985 until August 1992.3
On August 23, 1985, the bank, through Francisco Go,
sent the spouses a demand letter for "accounts
receivable in the total amount of ₱6,345.00 as of August
15, 1984,"4 which pertains to the insurance premiums
advanced by respondent bank over the mortgaged
property of petitioners.5
On August 23, 1995, more than fourteen years from the
time the loan became due and demandable, respondent
bank filed a petition for extrajudicial foreclosure of
mortgage of petitioners’ property.6 On October 18, 1995,
the property was sold in a public auction by Sheriff
Arthur Cabigon with Philippine Veterans Bank as the lone
bidder.
On April 26, 1996, petitioners filed a complaint with the
RTC, Cebu City, to declare the extra-judicial foreclosure
and the subsequent sale thereof to respondent bank null
and void.7
In the pre-trial conference, the parties agreed to limit
the issue to whether or not the period within which the
bank was placed under receivership and liquidation was
a fortuitous event which suspended the running of the
ten-year prescriptive period in bringing actions.8
On April 17, 1998, the RTC rendered its decision,
the fallo of which reads:
WHEREFORE, premises considered judgment is
hereby rendered dismissing the complaint for
lack of merit. Likewise the compulsory
counterclaim of defendant is dismissed for being
unmeritorious.9
It reasoned that:
by the Central Bank from April 1985 until 1992.
The defendant bank was given authority by the
Central Bank to operate as a private commercial
bank and became fully operational only on
August 3, 1992. From April 1985 until July 1992,
defendant bank was restrained from doing its
business. Doing business as construed by Justice
Laurel in 222 SCRA 131 refers to:
"….a continuity of commercial dealings
and arrangements and contemplates to
that extent, the performance of acts or
words or the exercise of some of the
functions normally incident to and in
progressive prosecution of the purpose
and object of its organization."
The defendant bank’s right to foreclose the
mortgaged property prescribes in ten (10) years
but such period was interrupted when it was
placed under receivership. Article 1154 of the
New Civil Code to this effect provides:
"The period during which the obligee
was prevented by a fortuitous event
from enforcing his right is not reckoned
against him."
In the case of Provident Savings Bank vs. Court
of Appeals, 222 SCRA 131, the Supreme Court
said.
"Having arrived at the conclusion that a
foreclosure is part of a bank’s activity which
could not have been pursued by the receiver
then because of the circumstances discussed in
the Central Bank case, we are thus convinced
that the prescriptive period was legally
interrupted by fuerza mayor in 1972 on account
of the prohibition imposed by the Monetary
Board against petitioner from transacting
business, until the directive of the Board was
nullified in 1981. Indeed, the period during
which the obligee was prevented by a caso
fortuito from enforcing his right is not reckoned
against him. (Art. 1154, NCC) When prescription
is interrupted, all the benefits acquired so far
from the possession cease and when
prescription starts anew, it will be entirely a new
one. This concept should not be equated with
suspension where the past period is included in
the computation being added to the period after
the prescription is presumed (4 Tolentino,
Commentaries and Jurisprudence on the Civil
Code of the Philippines 1991 ed. pp. 18-19),
consequently, when the closure of the petitioner
was set aside in 1981, the period of ten years
within which to foreclose under Art. 1142 of the
N.C.C. began to run and, therefore, the action
filed on August 21, 1986 to compel petitioner to
release the mortgage carried with it the
mistaken notion that petitioner’s own suit for
foreclosure has prescribed."
Even assuming that the liquidation of defendant
bank did not affect its right to foreclose the
plaintiffs’ mortgaged property, the questioned
extrajudicial foreclosure was well within the ten
(10) year prescriptive period. It is noteworthy to
 mention at this point in time, that defendant
bank through authorized Deputy Francisco Go
made the first extrajudicial demand to the
plaintiffs on August 1985. Then on March 24,
1995 defendant bank through its officer-in-
charge Llanto made the second extrajudicial
demand. And we all know that a written
extrajudicial demand wipes out the period that
has already elapsed and starts anew the
prescriptive period. (Ledesma vs. C.A., 224
SCRA 175.)10
Petitioners filed a motion for reconsideration which the
RTC denied on August 25, 1998.11 Thus, the present
petition for review where petitioners claim that the RTC
erred:
I true, forbid the institution to do business in the
…IN RULING THAT THE PERIOD WITHIN
WHICH RESPONDENT BANK WAS PUT UNDER
RECEIVERSHIP AND LIQUIDATION WAS A
FORTUITOUS EVENT THAT INTERRUPTED THE
RUNNING OF THE PRESCRIPTIVE PERIOD.
II
…IN RULING THAT THE WRITTEN EXTRA-
JUDICIAL DEMAND MADE BY RESPONDENT ON
PETITIONERS WIPED OUT THE PERIOD THAT
HAD ALREADY ELAPSED.
III
…IN DENYING PETITIONERS’ MOTION FOR
RECONSIDERATION OF ITS HEREIN ASSAILED
DECISION.12
Petitioners argue that: since the extra-judicial
foreclosure of the real estate mortgage was effected by
the bank on October 18, 1995, which was fourteen years
from the date the obligation became due on February
27, 1981, said foreclosure and the subsequent sale at
public auction should be set aside and declared null and
void ab initio since they are already barred by
prescription; the court a quo erred in sustaining the
respondent’s theory that its having been placed under
receivership by the Central Bank between April 1985 and
August 1992 was a fortuitous event that interrupted the
running of the prescriptive period;13 the court a
quo’s reliance on the case of Provident Savings Bank vs.
Court of Appeals14 is misplaced since they have different
sets of facts; in the present case, a liquidator was duly
appointed for respondent bank and there was no
judgment or court order that would legally or physically
hinder or prohibit it from foreclosing petitioners’
property; despite the absence of such legal or physical
hindrance, respondent bank’s receiver or liquidator failed
to foreclose petitioners’ property and therefore such
inaction should bind respondent bank;15 foreclosure of
mortgages is part of the receiver’s/liquidator’s duty of
administering the bank’s assets for the benefit of its
depositors and creditors, thus, the ten-year prescriptive
period which started on February 27, 1981, was not
interrupted by the time during which the respondent
bank was placed under receivership; and the Monetary
Board’s prohibition from doing business should not be
construed as barring any and all business dealings and
transactions by the bank, otherwise, the specific
mandate to foreclose mortgages under Sec. 29 of R.A.
No. 265 as amended by Executive Order No. 65 would
be rendered nugatory.16 Said provision reads:
Section 29. Proceedings upon Insolvency –
Whenever, upon examination by the head of the
appropriate supervising or examining
department or his examiners or agents into the
condition of any bank or non-bank financial
intermediary performing quasi-banking
functions, it shall be disclosed that the condition
of the same is one of insolvency, or that its
continuance in business would involve probable
loss to its depositors or creditors, it shall be the
duty of the department head concerned
forthwith, in writing, to inform the Monetary
Board of the facts. The Board may, upon finding
the statements of the department head to be
Philippines and designate the official of the
Central Bank or a person of recognized
competence in banking or finance, as receiver to
immediately take charge its assets and liabilities,
as expeditiously as possible, collect and gather
all the assets and administer the same for the
benefit of its creditors, and represent the bank
personally or through counsel as he may retain
in all actions or proceedings for or against the
institution, exercising all the powers necessary
for these purposes including, but not limited to,
bringing and foreclosing mortgages in the name
of the bank.
Petitioners further contend that: the demand letter,
dated March 24, 1995, was sent after the ten-year
prescriptive period, thus it cannot be deemed to have
revived a period that has already elapsed; it is also not
one of the instances enumerated by Art. 1115 of the
Civil Code when prescription is interrupted;17 and the
August 23, 1985 letter by Francisco Go demanding
₱6,345.00, refers to the insurance premium on the
house of petitioners, advanced by respondent bank, thus
such demand letter referred to another obligation and
could not have the effect of interrupting the running of
the prescriptive period in favor of herein petitioners
insofar as foreclosure of the mortgage is concerned.18
Petitioners then prayed that respondent bank be ordered
to pay them ₱100,000.00 as moral damages, ₱50,000.00
as exemplary damages and ₱100,000.00 as attorney’s
fees.19
Respondent for its part asserts that: the period within
which it was placed under receivership and liquidation
was a fortuitous event that interrupted the running of
the prescriptive period for the foreclosure of petitioners’
mortgaged property; within such period, it was
specifically restrained and immobilized from doing
business which includes foreclosure proceedings; the
extra-judicial demand it made on March 24, 1995 wiped
out the period that has already lapsed and started anew
the prescriptive period; respondent through its
authorized deputy Francisco Go made the first extra-
judicial demand on the petitioners on August 23, 1985;
while it is true that the first demand letter of August
1985 pertained to the insurance premium advanced by it
over the mortgaged property of petitioners, the same
however formed part of the latter’s total loan obligation
with respondent under the mortgage instrument and
therefore constitutes a valid extra-judicial demand made
within the prescriptive period.20
In their Reply, petitioners reiterate their earlier
arguments and add that it was respondent that insured
the mortgaged property thus it should not pass the
obligation to petitioners through the letter dated August
1985.21
To resolve this petition, two questions need to be
answered: (1) Whether or not the period within which
the respondent bank was placed under receivership and
liquidation proceedings may be considered a fortuitous
event which interrupted the running of the prescriptive
period in bringing actions; and (2) Whether or not the
demand letter sent by respondent bank’s representative
on August 23, 1985 is sufficient to interrupt the running
of the prescriptive period.
Anent the first issue, we answer in the negative.
One characteristic of a fortuitous event, in a legal sense
and consequently in relations to contract, is that its
occurrence must be such as to render it impossible for a
party to fulfill his obligation in a normal manner.22
Respondent’s claims that because of a fortuitous event,
it was not able to exercise its right to foreclose the
mortgage on petitioners’ property; and that since it was
banned from pursuing its business and was placed under
receivership from April 25, 1985 until August 1992, it
could not foreclose the mortgage on petitioners’
property within such period since foreclosure is
embraced in the phrase "doing business," are without
merit.
While it is true that foreclosure falls within the broad
definition of "doing business," that is:
…a continuity of commercial dealings and
arrangements and contemplates to that extent,
the performance of acts or words or the exercise
of some of the functions normally incident to
and in progressive prosecution of the purpose
and object of its organization.23
it should not be considered included, however, in the
acts prohibited whenever banks are "prohibited from
doing business" during receivership and liquidation
proceedings.
This we made clear in Banco Filipino Savings &
Mortgage Bank vs. Monetary Board, Central Bank of the
Philippines24 where we explained that:
Section 29 of the Republic Act No. 265, as
amended known as the Central Bank Act,
provides that when a bank is forbidden to do
business in the Philippines and placed under
receivership, the person designated as receiver
shall immediately take charge of the bank’s
assets and liabilities, as expeditiously as
possible, collect and gather all the assets and
administer the same for the benefit of its
creditors, and represent the bank personally or
through counsel as he may retain in all actions
or proceedings for or against the
institution, exercising all the powers necessary
for these purposes including, but not limited
to, bringing and foreclosing mortgages in the
name of the bank.25
This is consistent with the purpose of receivership
proceedings, i.e., to receive collectibles and preserve the
assets of the bank in substitution of its former
management, and prevent the dissipation of its assets to
the detriment of the creditors of the bank.26
When a bank is declared insolvent and placed under
receivership, the Central Bank, through the Monetary
Board, determines whether to proceed with the
liquidation or reorganization of the financially distressed
bank. A receiver, who concurrently represents the bank,
then takes control and possession of its assets for the
benefit of the bank’s creditors. A liquidator meanwhile
assumes the role of the receiver upon the determination
by the Monetary Board that the bank can no longer
resume business. His task is to dispose of all the assets
of the bank and effect partial payments of the bank’s
obligations in accordance with legal priority. In both
receivership and liquidation proceedings, the bank
retains its juridical personality notwithstanding the
closure of its business and may even be sued as its
corporate existence is assumed by the receiver or
liquidator. The receiver or liquidator meanwhile acts not
only for the benefit of the bank, but for its creditors as
well.27
In Provident Savings Bank vs. Court of Appeals,28 we
further stated that:
When a bank is prohibited from continuing to do
business by the Central Bank and a receiver is
appointed for such bank, that bank would not be
able to do new business, i.e., to
grant new  loans or to accept new  deposits.
However, the receiver of the bank is in fact
obliged to collect debts owing to the bank,
which debts form part of the assets of the
bank. The receiver must assemble the
assets and pay the obligation of the bank
under receivership, and take steps to
prevent dissipation of such assets.
Accordingly, the receiver of the bank is
obliged to collect pre-existing debts due to
the bank, and in connection therewith, to
foreclose mortgages securing such
debts.29 (Emphasis supplied.)
It is true that we also held in said case that the period
during which the bank was placed under receivership
was deemed fuerza mayor which validly interrupted the
prescriptive period.30 This is being invoked by the
respondent and was used as basis by the trial court in its
decision. Contrary to the position of the respondent and
court a quo however, such ruling does not find
application in the case at bar.
A close scrutiny of the Provident  case, shows that the
Court arrived at said conclusion, which is an exception to
the general rule, due to the peculiar circumstances of
Provident Savings Bank at the time. In said case, we
stated that:
Having arrived at the conclusion that a
foreclosure is part of a bank’s business
activity which could not have been pursued
by the receiver then because of the
circumstances discussed in the Central
Bank  case, we are thus convinced that the
prescriptive period was legally interrupted
by fuerza mayor in 1972 on account of the
 prohibition imposed by the Monetary Board
against petitioner from transacting business,
until the directive of the Board was nullified in
1981.31 (Emphasis supplied.)
Further examination of the Central Bank case reveals
that the circumstances of Provident Savings Bank at the
time were peculiar because after the Monetary Board
issued MB Resolution No. 1766 on September 15, 1972,
prohibiting it from doing business in the Philippines, the
bank’s majority stockholders immediately went to the
Court of First Instance of Manila, which prompted the
trial court to issue its judgment dated February 20,
1974, declaring null and void the resolution and ordering
the Central Bank to desist from liquidating Provident.
The decision was appealed to and affirmed by this Court
in 1981. Thus, the Superintendent of Banks, which was
instructed to take charge of the assets of the bank in the
name of the Monetary Board, had no power to act as a
receiver of the bank and carry out the obligations
specified in Sec. 29 of the Central Bank Act.32
In this case, it is not disputed that Philippine Veterans
Bank was placed under receivership by the Monetary
Board of the Central Bank by virtue of Resolution No.
364 on April 25, 1985, pursuant to Section 29 of the
Central Bank Act on insolvency of banks.33
Unlike Provident Savings Bank, there was no legal
prohibition imposed upon herein respondent to deter its
receiver and liquidator from performing their obligations
under the law. Thus, the ruling laid down in
the Provident case cannot apply in the case at bar.
There is also no truth to respondent’s claim that it could
not continue doing business from the period of April
1985 to August 1992, the time it was under receivership.
As correctly pointed out by petitioner, respondent was
even able to send petitioners a demand letter, through
Francisco Go, on August 23, 1985 for "accounts
receivable in the total amount of ₱6,345.00 as of August
15, 1984" for the insurance premiums advanced by
respondent bank over the mortgaged property of
petitioners. How it could send a demand letter on unpaid
insurance premiums and not foreclose the mortgage
during the time it was "prohibited from doing business"
was not adequately explained by respondent.
Settled is the principle that a bank is bound by the acts,
or failure to act of its receiver.34 As we held in Philippine
Veterans Bank vs. NLRC,35 a labor case which also
involved respondent bank,
… all the acts of the receiver and liquidator
pertain to petitioner, both having assumed
petitioner’s corporate existence. Petitioner
cannot disclaim liability by arguing that the non-
payment of MOLINA’s just wages was
committed by the liquidators during the
liquidation period.36
However, the bank may go after the receiver who is
liable to it for any culpable or negligent failure to collect
the assets of such bank and to safeguard its assets.37
Having reached the conclusion that the period within
which respondent bank was placed under receivership
and liquidation proceedings does not constitute a
fortuitous event which interrupted the prescriptive
period in bringing actions, we now turn to the second
issue on whether or not the extra-judicial demand made
by respondent bank, through Francisco Go, on August
23, 1985 for the amount of ₱6,345.00, which pertained
to the insurance premiums advanced by the bank over
the mortgaged property, constitutes a valid extra-judicial
demand which interrupted the running of the
prescriptive period. Again, we answer this question in
the negative.
Prescription of actions is interrupted when they are filed
before the court, when there is a written extra-judicial
demand by the creditors, and when there is any written
acknowledgment of the debt by the debtor.38
Respondent’s claim that while its first demand letter
dated August 23, 1985 pertained to the insurance
premium it advanced over the mortgaged property of
petitioners, the same formed part of the latter’s total
loan obligation with respondent under the mortgage
instrument, and therefore, constitutes a valid extra-
judicial demand which interrupted the running of the
prescriptive period, is not plausible.
The real estate mortgage signed by the petitioners
expressly states that:
This mortgage is constituted by the Mortgagor
to secure the payment of the loan and/or credit
accommodation granted to the spouses Cesar A.
Larrobis, Jr. and Virginia S. Larrobis in the
amount of ONE HUNDRED THIRTY FIVE
THOUSAND (₱135,000.00) PESOS ONLY
Philippine Currency in favor of the herein
Mortgagee.39
The promissory note, executed by the petitioners, also
states that:
…FOR VALUE RECEIVED, I/WE, JOINTLY AND
SEVERALLY, PROMISE TO PAY THE PHILIPPINE
VETERANS BANK, OR ORDER, AT ITS OFFICE
AT CEBU CITY THE SUM OF ONE HUNDRED
THIRTY FIVE THOUSAND PESOS (P135,000.00),
PHILIPPINE CURRENCY WITH INTEREST AT
THE RATE OF FOURTEEN PER CENT (14%) PER
ANNUM FROM THIS DATE UNTIL FULLY PAID.40
Considering that the mortgage contract and the
promissory note refer only to the loan of petitioners in
the amount of ₱135,000.00, we have no reason to hold
that the insurance premiums, in the amount of
₱6,345.00, which was the subject of the August 1985
demand letter, should be considered as pertaining to the
entire obligation of petitioners.
In Quirino Gonzales Logging Concessionaire vs. Court of
Appeals,41  we held that the notices of foreclosure sent
by the mortgagee to the mortgagor cannot be
considered tantamount to written extrajudicial demands,
which may validly interrupt the running of the
prescriptive period, where it does not appear from the
records that the notes are covered by the mortgage
contract.42
In this case, it is clear that the advanced payment of the
insurance premiums is not part of the mortgage contract
and the promissory note signed by petitioners. They
pertain only to the amount of ₱135,000.00 which is the
principal loan of petitioners plus interest. The arguments
of respondent bank on this point must therefore fail.

As to petitioners’ claim for damages, however, we find

no sufficient basis to award the same. For moral
damages to be awarded, the claimant must satisfactorily
prove the existence of the factual basis of the damage
and its causal relation to defendant’s acts.43 Exemplary
damages meanwhile, which are imposed as a deterrent
against or as a negative incentive to curb socially
deleterious actions, may be awarded only after the
claimant has proven that he is entitled to moral,
temperate or compensatory damages.44 Finally, as to
attorney’s fees, it is demanded that there be factual,
legal and equitable justification for its award. 45 Since the
bases for these claims were not adequately proven by
the petitioners, we find no reason to grant the same.

WHEREFORE, the decision of the Regional Trial Court,

Cebu City, Branch 24, dated April 17, 1998, and the
order denying petitioners’ motion for reconsideration
dated August 25, 1998 are hereby REVERSED and SET
ASIDE. The extra-judicial foreclosure of the real estate
mortgage on October 18, 1995, is hereby declared null
and void and respondent is ordered to return to
petitioners their owner’s duplicate certificate of title.

Costs against respondent.

SO ORDERED.